Expansion refers to the red-shift discovered by Hubble--raisins in a loaf, dots on a balloon, etc. It is the speed of recession of distant galaxies, but that speed is a function of distance. The galaxies are not flying apart like shrapnel in an explosion, they are all stationary and space itself is expanding.

Inflation is something new and I'm not too sure I understand it. It has to do with the early universe expanding faster than light right after the Big Bang. It is now a proposed solution to some variations and anomalies in the expansion that have been detected recently.

What makes the expansion more like your option 2) is that the rate of expansion increases with distance. Nearby galaxies are receding at slower speeds than distant galaxies. In fact, the speed of recession is a linear function of distance, and its slope is called the Hubble Constant.

Its value is constantly being updated. According to Wikipedia,

"As of 3rd Oct 2012 the Hubble Constant, as measured by NASA's Spitzer Telescope and reported in Science Daily, is 74.3 ± 2.1 (km/s)/Mpc."

This means that for every million parsecs of distance, the speed of expansion increases by
roughly 74 kilometers per second.

A parsec (parallax-second) is about 3.26 light years. It is a unit convenient to astronomers because it is the distance at which the radius of earth's orbit (an Astronomical Unit) subtends an angle of 1 second of arc. The unit was useful for baseline triangulation of stellar distances, and astronomers still use it because they are incurable traditionalists.